THREAD ON DELTA (The most important GREEK)
Many traders don't indulge in understanding GREEKS because they think they are very complicated.
There are 4 primary greeks:
Delta
Gamma
Theta
Vega
In my experience, understanding DELTA is enough to take benefit of greeks.(1/n)
Delta measures the rate of change of options price based on the directional movement of the underlying.
So this means we can know in advance (theoretically) how much an option will move with the underlying & so we can prepare our strategies accordingly. (2/n)
Value of delta varies between 0 & 1 for calls and -1 & 0 for puts. This figure tells how much an option price will change, when the underlying moves 1 point. So example a delta of .2 of call indicates that for every 1 point change in the underlying, the price will move .2 (3/n)
For option writers who want to trade in neutral strategies like straddle, strangle, ratios, calendar etc, delta can be very helpful. So be it any complex strategy, knowing the NET DELTA can give you an idea of how your strategy will perform in different scenarios. (4/n)
Net delta is just the sum of the deltas of all the bull options (call+ & put-) minus the bear options (call- & put+).
So if we can track this, we will always be in the know of how much exposed our position is. It makes it easier then to adjust our position. (5/n)
